Court of Appeal clarify the law on when an incidental benefit can found a claim in unjust enrichment.

Dr Christopher Harris of 3 Verulam Buildings, instructed by Charles Fussell & Co LLP appeared for TFL, the successful appellant.

Professor Gerard McMeel and Mr Neil Levy of Guildhall Chambers, instructed by CMS Cameron McKenna LLP appeared for Lloyds Bank.

The facts giving rise to the appeal are relatively complex. In 2002, a previously-successful company, The Trading Force Limited ("TTFL"), went into receivership, although it had a number of current contracts. The main debtor was Lloyds TSB Bank PLC ("Lloyds Bank"), which engaged receivers (the "Receivers") to deal with the assets and recover the debt owed to it. Accordingly, the Receivers entered into a Chargee Sale of Assets Agreement (the "CSA Agreement") which provided that certain assets were transferred to the Receivers, and the remainder of TTFL's assets were retained by Explora Group Plc ("Explora"), a company associated with TTFL.

Explora mistakenly believed that one of the assets transferred to it was the fruits of a particular contract with a third party, Hesco Bastion, and pursued payment of the contract by means of a successful action in the High Court. On appeal from Hesco Bastion however, the Court of Appeal found that, although Hesco Bastion owed the debt under the contract, the fruits of the contract had not, in fact, been transferred to Explora by way of the CSA Agreement, but had instead been retained by the Receivers for the ultimate benefit of Lloyds Bank.

TFL Management Services Limited ("TFL"), which has conduct of Explora's claim through a series of assignments, now seeks restitution from Lloyds Bank on the basis that the bank has been unjustly enriched by Explora's pursuit of the debt owed by Hesco Bastion. The main factual allegations, as summarized by Floyd LJ, are as follows:

  1. Throughout its proceedings against Hesco Bastion, Explora mistakenly believed that the benefit of the future commissions due under the CSA Agreement had been assigned to Explora;
  2. At all material times Lloyds (through TTFL's receivers) laboured under the same mistake as Explora; namely, the benefit had passed to Explora;
  3. Because of the mistake, Explora incurred the costs of bringing proceedings against Hesco Bastion to recover the debt owed by Hesco Bastion, but Lloyds Bank benefitted by the proceedings; and

iv. Accordingly Explora conferred a valuable benefit on Lloyds Bank, and Lloyds Bank was unjustly enriched at the expense of Explora.

Summary judgment was sought by Lloyds Bank in February 2013, inter alia, on the basis that TFL was precluded from recovering because any benefit received by Lloyds Bank was incidental to the main benefit sought (though not received) by Explora. TFL defended its position on the basis that its mistake was an unjust factor which had caused Lloyds to be unjustly enriched, and asserted that the benefit received by Lloyds Bank was not, in fact, an incidental benefit but a direct benefit, being the same benefit that Explora had sought for itself. In particular, TFL relied on Greenwood v Bennett [1973] 1 QB 195, in which Denning LJ held that a direct benefit, whether pursued for the benefit of oneself or for another, was recoverable in unjust enrichment. Lloyds Bank was granted summary judgment, with the judge distinguishing Greenwood v Bennett, because he concluded that there was a rule that incidental benefit (which, he found, Lloyds Bank had benefitted by), could not found a cause of action in unjust enrichment.

TFL successfully appealed. The Court of Appeal (Beatson and Floyd LJJ allowing the appeal with Sir Stanley Burnton dissenting) held that the law in the area was in a state of flux and was not, in any event, suitable to be determined at summary judgment. The main issue on the appeal was how to define an incidental benefit, and the issues which surrounded the doctrine. TFL argued that in order to create an incidental benefit, there must be a primary benefit incurred by one party, which is separate and distinct from any additional, incidental benefit incurred by another. Lloyds Bank argued that it did not matter whether there was one benefit or more than one, as the basis of the defence of incidental benefit should be that the claimant had embarked on a course of action with some principal intended consequence in mind, which was pursued for the claimant's self-interest, but in the course of the same a benefit accrued to the defendant which was not identical to the claimant's principal intended consequence.

This was the first time that the court had been invited to formulate the exception to the type of benefit which, if conferred on a defendant by a claimant, can be relied on for the purposes of an unjust enrichment claim, though the issue had been considered by a number of academic commentators. Floyd LJ, giving the leading judgment, referred to the case of Banque Financiere de la Cite v Parc (Battersea) Limited [1999] 1 AC 221 in which Lord Steyn found that there were four main questions to consider in any claim for unjust enrichment; namely (1) had the defendant benefitted or been enriched; (2) was the enrichment at the expense of the claimant; (3) was the enrichment unjust; and (4) was there any specific defence available to the defendant.

Floyd LJ held that, in the context of the existing conceptual structure set out in Banque Financiere de la Cite v Parc (Battersea) Limited, there was no reason to formulate a general exception in the law of restitution on the basis of incidental benefit. He further held that where a claimant conferred a benefit on a defendant in circumstances where he was labouring under a mistake, so that the benefit he sought for himself actually benefitted someone else, there was no reason why the court should deny the claimant a remedy just because the benefit conferred was not identical to the one pursued by the claimant. Instead, the matter should rest on whether the other elements necessary to found a claim in restitution were present.

Beatson LJ agreed, noting that there was no confirmed authority, and that the test advocated by Lloyds Bank would preclude restitution in a number of cases where it had been ordered. Sir Stanley Burnton dissented, principally on the basis that he was unable to contemplate how Explora's loss could be quantified, though also on the basis that he believed that Explora's remedy should lie in rectification rather than in restitution.